Sunday, April 17, 2016

Exploiting Wis. Stat. s. 452.142's Weaknesses - The Buyer's Misrepresentation Claims

This is yet another post about the "Chapter 452 Modernization Act" and its two-year statute of limitations for claims against real estate agents.  To review, Wis. Stat. s. 452.142 provides as follows:

(1) Notwithstanding s. 100.18 (11) (b) 3.893.43893.52, or 893.57, an action concerning any act or omission of a firm or any licensee associated with the firm relating to brokerage services shall be commenced within 2 years after whichever of the following that applies occurs first:
(a) A transaction is completed or closed.
(b) An agency agreement is terminated.
(c) An unconsummated transaction is terminated or expires.
(2) The period of limitation under this section may not be reduced by agreement.
(3) The period of limitation under this section does not apply to disciplinary actions initiated by the board.

Today, we'll focus on the buyer's claims against the seller's real estate agent.  As I said in an earlier post, the buyer's most likely claims against the seller's agent are misrepresentation claims.  Seller's agents may misrepresent a property through violating their duty to disclose material adverse facts.  For example, the buyer in my last post has a viable misrepresentation claim against the seller's agent for failing to disclose that the property's basement leaked.  Seller's agents may also affirmatively misrepresent the property in their advertising on the Multiple Listing Service.  In my time, I've seen seller's agents misrepresent square footage, number of bedrooms, conforming use, zoning, acreage, and buildability.

Let's start with the easy one - Wis. Stat. s. 452.142 clearly changes the limitations period for s. 100.18 actions against real estate agents from "three years after the occurrence of the unlawful act or practice" to two years after closing.  That being said, buyers rarely bring successful s. 100.18 claims against real estate agents anyway.  A failure to disclose material adverse facts does not qualify as a representation under this statute.  That forces the buyer to prove that the seller's agent made an affirmative misrepresentation.  Unfortunately, the buyer must also prove that the listing agent KNEW that the representation was false:

This section does not apply to a person licensed as a broker or salesperson under s. 452.09 while that person is engaged in real estate practice, as defined in s. 452.01 (6), unless that person has directly made, published, disseminated, circulated or placed before the public an assertion, representation or statement of fact with the knowledge that the assertion, representation or statement of fact is untrue, deceptive or misleading.

Wis. Stat. s. 100.18(12)(b).  Even if the buyer proves that the seller's agent knowingly misrepresented a property with an illegal basement bedroom as a three-bedroom, he still cannot recover reasonable attorneys' fees against that agent:

Any person suffering pecuniary loss because of a violation of this section by any other person may sue in any court of competent jurisdiction and shall recover such pecuniary loss, together with costs, including reasonable attorney fees, except that no attorney fees may be recovered from a person licensed under ch. 452 while that person is engaged in real estate practice, as defined in s. 452.01 (6).

Wis. Stat. s. 100.18(11)(b)2.  In light of these hurdles, there's no real incentive to pursue a s. 100.18 claim against a real estate agent.  Instead, I typically allege common law negligent, strict liability, and intentional misrepresentation causes of action.  These causes of action are not barred by the economic loss doctrine because the buyer does not enter into a contract with the seller's real estate agent.  Shister v. Patel, 2009 WI App 163.

So how does Wis. Stat. s. 452.142 affect a buyer's common law misrepresentation claims against the seller's real estate agent?  In my opinion, buyers still have at least 6 years to commence an intentional misrepresentation cause of action against the seller's agent notwithstanding the new statute.  Additionally, buyers MIGHT still have at least 6 years to commence negligent and strict liability misrepresentation causes of action against the seller's agent.  The issue is how courts interpret "fraud" under Wis. Stat. s. 893.93(1)(b).    

Even the Wisconsin REALTORS Association concedes that the new statute does not apply to fraud.  I independently reached the same conclusion based on the same logic that I used to conclude that the new statute does not apply to contribution claims in my last post.  Since the new statute does not mention Wis. Stat. s. 893.93, it does not exempt fraud claims against real estate agents from the existing statute of limitation for fraud claims.  While the new statute expressly overrides the existing statute of limitations for intentional tort claims under Wis. Stat. s. 893.57, that statute covers actions "to recover damages for libel, slander, assault, battery, invasion of privacy, false imprisonment or other intentional tort to the person. . . ."  Fraud is usually not an intentional tort "to the person"; and regardless, it has its own specific statute of limitation:

The following actions shall be commenced within 6 years after the cause of action accrues or be barred:

An action for relief on the ground of fraud. The cause of action in such case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud.

Wis. Stat. s. 893.93(1)(b).

Does this statute simply govern causes of action for intentional fraud or does it also govern causes of action for negligent misrepresentation and strict liability misrepresentation?  I note that this statute does not speak of "intentional fraud."  While some might believe that the f-word necessarily connotes an intentional act, the Wisconsin Supreme Court disagreed in a seminal misrepresentation case:

Even at law, recovery in damages is allowed for fraud not amounting to deceit. Fraud is a generic and an ambiguous term. It embranches misrepresentation which may be separated into the three familiar tort classifications of intent, negligence, and strict responsibility.

Whipp v. Iverson, 43 Wis. 2d 166, 168 N.W.2d 201 (1969).  I have not been able to find any published Wisconsin state court decision deciding what statute of limitation applies to causes of action for negligent misrepresentation and strict liability misrepresentation.  Adding to the confusion, United States District Court Judge Lynn Adelman decided this issue twice within the course of two years and came to contrary conclusions.  In Schimpf v. Gerald Inc., 52 F. Supp. 2d 976 (E.D. Wis. 1999), he rejected the defendant's argument that s. 893.54 governs negligent misrepresentation claims, but then held that s. 893.52 governs such claims.  Id. at 1007.  In Lewis v. Paul Revere Life Ins. Co., 80 F. Supp. 2d 978 (E.D. Wis. 2000), however, he held that s. 893.93(1)(b) applied to all common law misrepresentation claims, including those for negligent and strict liability misrepresentation.  Id. at 994-95.  Perhaps no one brought s. 893.93(1)(b) to Judge Adelman's attention in Schimpf?

Based on this uncertainty, I see no reason to change how I approach buyer misrepresentation claims against the seller's real estate agent.  I will continue to plead and try to prove causes of action for negligent, strict liability, and intentional misrepresentation.  The bottom line is that the new statute should have little effect on buyers' claims against sellers' agents.